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Dell delays buyout vote, signaling lack of support

Sunday - 7/21/2013, 3:20pm EDT

DAVID KOENIG
AP Business Writers

ROUND ROCK, Texas (AP) -- Michael Dell believes he can revive the company bearing his name if his group of investors can buy it for $24.4 billion. But that deal is in danger of falling apart, increasing the chances that the personal computer giant's founder might not be CEO much longer.

The formidable challenges already facing Dell Inc. and its CEO got more daunting Thursday with the slumping company's decision to delay a vote on Michael Dell's proposed buyout.

The postponement until next Wednesday signals that a five-month campaign by Michael Dell and the company's board hasn't overcome the staunch resistance of billionaire Carl Icahn and other shareholders, who argue that the buyout price is too low and discounts the company's long-term prospects.

Michael Dell's offer has the support of three shareholder-advisory firms and is backed by the financial clout of buyout specialist Silver Lake Partners and a group of lenders. It would take the company private so that Michael Dell can try to engineer a long-term recovery without the glare of Wall Street and its fixation with quarter-to-quarter expectations.

The offer works out to $13.65 per share, or more than 40 percent below where the stock stood in early 2007. That was when Michael Dell returned for a second stint as the company's CEO -- just a few months before Apple Inc. started selling the iPhone, which triggered a mobile-computing revolution that left Dell Inc. on shaky ground.

Rather than relying on the types of desktops and laptops made by Dell, more people are embracing convenient and powerful smartphones and tablet computers to connect to the Internet and handle other common computing tasks. In a telltale sign of the upheaval, tablets are expected to outsell laptops for the first time this year.

Michael Dell plans to invest heavily in tablets and a new breed of hybrid PCs that offer the touch-screen controls of mobile devices. That commitment is likely to depress the company's earnings until the additional spending pays off. At the same time, he wants Dell to become a diversified seller of technology services, business software and high-end computers -- much the way IBM Corp. successfully transformed itself in the 1990s.

Unlike IBM, Michael Dell believes the radical makeover can be better done by a company that isn't facing Wall Street's pressures to increase profits and revenue from one quarter to the next. That's why he structured his buyout to end Dell's 25-year history as a publicly held company -- a run that has made the 48-year-old CEO one of the world's richest people, with an estimated fortune of $15 billion, according to Forbes' latest rankings.

Michael Dell and a four-person board committee overseeing the company's sale negotiations will make last-ditch efforts during the next six days to persuade opposing shareholders to change their minds while also prodding apathetic shareholders who didn't cast their ballots to weigh in with a yes vote.

The proposal needs the backing of just over 42 percent of Dell's outstanding stock to be approved. Less than 50 percent of the stock is needed because Michael Dell's 15.6 percent stake in the company isn't counted in the balloting.

Shareholders representing at least 20 percent of the votes are known to be in opposition.

It's possible that Michael Dell and Silver Lake could sweeten their offer to sway the holdouts, although many analysts are skeptical that the bid will be increased because the PC market and Dell's financial performance have deteriorated even further since the deal was reached in February. The board says it already wrangled six bid increases from Silver Lake and Michael Dell during the negotiations leading up to the agreement at $13.65 per share.

Michael Dell isn't sharing his thoughts publicly. He showed up at Thursday's meeting at the company's Round Rock, Texas, headquarters with several other board members. But he made no remarks and walked out without answering questions after the gathering was quickly adjourned to give him and the board more time to find a way to get the deal done.

The hope for a better offer, or at least getting a deal done, seemed to help Dell's stock Thursday. After the delay was announced, the stock gained 24 cents, or 1.9 percent, to close at $13.12.

If Michael Dell's deal collapses, it would thrust the company and its stock into turmoil, said Needham & Co. analyst Richard Kugele.

"We fear that Dell is entering a period of massive uncertainty, where nearly all options are negative, disruptive and MESSY," Kugele warned Thursday in a research note.